How can the fleet industry help employers to control fleet costs?

When an employer is considering launching, reintroducing or altering a company car scheme, there are a number of factors it should take into account to ensure that it opts for the package that is best suited to its needs and those of its staff.

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Looking at whole life cost can provide a more complete picture of spend and cost savings.

Bringing together data on fleet, travel and expenses from across an organisation can help an employer to identify and control costs.

The fleet industry can offer employers insights and share best practice, which can increase cost efficiency.

Paul Hollick, chairman of the Institute of Car Fleet Management (ICFM), says the first question employers should ask themselves is: “What do they use the [cars] for?”

This should be followed by further questions, such as when, how much and how often are cars used, why employers are introducing a company car scheme and what they are hoping to achieve by it, among others. Once this essential checklist of what, when, how and why has been examined, employers should then consider to what extent the scheme they are getting mirrors all of those aims, says John Webb, principal consultant at Lex Autolease.

Look at the whole picture

A consistent and comprehensive approach to data collection and management can help to provide a complete picture of how much an organisation spends on fleet, and indeed on travel as a whole, which is an important metric when calculating cost savings and designing an effective travel strategy.

However, in some cases, data sets relating to fleet costs, travel and corporate expenses may exist in silos within an organisation, presenting a challenge when it comes to determining overall costs.

John Pryor, chairman of the Association of Car Fleet Operators (ACFO), explains: “It often sits in three different areas: travel in one area; expense and expense management in another area; and cars in another area. Bringing all of this together, we can see how much is spent on parking in a particular town and in a particular zone, how much is spent on fuel, and whether the car is a private car or company car.”

Webb adds: “If you go to many organisations and ask what the total cost of ownership for their fleet operation is, a lot of them don’t know. Although they will know elements of it, [because of] the way organisations are structured, there may be delegated budgets, and elements such as fuel, for example, may sit within other areas. So how can [the fleet industry] help them?

“One of the first things is to say ‘this is the total, whole life cost of your fleet and using best practice this is what it should be’, then identifying the variances and development policies to drive that cost down.”

Looking at whole life cost can help an employer to gain a deeper and more accurate insight into the financial benefits that certain company car schemes can provide over a complete cycle and in the context of an organisation’s particular usage and aims. This could take into account factors such as fuel, insurance, service and maintenance costs, as well as the tax advantages and reduced national insurance contributions offered via salary sacrifice arrangements, and the potential savings delivered by lower- and ultra-low-emission cars (ULEV) over the longer term.

According to the ACFO’s Pryor, a lack of understanding may lie at the root of this problem. “I think a lot of it is because people don’t understand,” he says. ”They might be looking at the price of the car rather than understanding that it’s about total cost of ownership; how much is it when you drill it down and take all the tax elements into account?”

A thorough understanding of total cost can also serve as a valuable marker when calculating cash allowances that are offered as an alternative to company car schemes. Knowing the whole life cost, and perhaps consulting with an expert, could prevent an employer overpaying on cash allowances.

Alastair Kendrick, director at MHA McIntyre Hudson, says: “The problem is that once you have promised someone X-amount of money, you can’t then take it away, all you can do is grandfather it. It’s very difficult, once somebody has [set this figure] to rewrite it.”

Costs can be further controlled by viewing cash allowances and car schemes within the context of a complete travel and mobility strategy, including spend on trains, planes, cars, parking and tolls. Aligning travel and fleet, in terms of approach and data provision, can provide greater harmonisation and cost savings. Pryor explains: “It’s knowing what the travel spend is and what the fleet spend is and bringing those together.”

Effective communication channels

It is not just alignment between travel and fleet that can help employers to lower costs, because balancing the objectives of interested parties within an organisation can also reap rewards. Colin Tourick, Grant Thornton Professor of automotive management at the University of Buckingham Business School, says that there can often be conflicting pulls within an organisation. For example, the human resources department might be looking for a car scheme with a high degree of flexibility, while a procurement professional will focus on minimising cost.

Lex Autolease’s Webb believes that this is a scenario in which the benefits of using a consultancy become apparent because it can “come in and take an objective view of what disparate stakeholders within an organisation want”.

Another group within the organisation whose views form a vital, and arguably the most important, role in this process is the employees. “How often do organisations ask the drivers [about the value they place in a scheme]? What does the employee feel about it? What is the direct impact on recruitment, retention and employee satisfaction?” asks Webb.

Open and effective lines of communication between providers and employers are also key. “You need to have the right people both on the buyer side and the supplier side; there needs to be that level of stability,” says Webb.

Having a manager or main point of contact within an organisation can be key to maintaining strong communication channels, and can also ensure the organisation is well placed to best utilise data provided by telematics systems, for example. “Whatever the developments in [technology], there needs to be a decision-maker who is going to take the data and do something with it,” says Webb.

Moving away from a pure price focus and taking into account the depth of factors surrounding fleet may, for example, be aided by a degree of procurement upskilling. This can be further facilitated by shared industry insights and knowledge, particularly in the small and medium-sized enterprise (SME) market and across sectors where corporate priorities and approaches to fleet may differ from those of larger employers. Indeed, Toby Poston, director of communications and external relations at the British Vehicle Rental and Leasing Association (BVRLA), says that a simple, dashboard-style information set could provide an entry point for smaller firms with less experience of company car schemes. It would help increase their understanding of the process and the key factors to take into account when implementing a scheme.

According to Tourick, it is, sometimes incorrectly, assumed that organisations have a complete understanding of the benefits, risks and issues surrounding schemes, which may result in less information being imparted to employers than to consumers.

A lack of understanding could have an impact on spend and cost efficiency. For example, when it comes to employee car ownership (Eco) schemes, Tourick says: “[There can be] a huge amount of misunderstanding within an organisation about how they work, but they really do deliver significant soft cost savings.”

Hollick adds: “[Employers] need to make sure that somebody in the [organisation] understands the scheme all the way through, not just upfront for the first year.”

Webb believes it is the industry’s role to ensure that employers are fully aware of the advantages and implications of introducing company car schemes.

“I think there is an obligation to make sure that we are compliant with all financial regulation and that the customer fully understands the choices [made] because, ultimately, the choice is theirs. So they need to understand the tax implications and that understanding [must be] passed on to the end user.”

Statistics

62.4%: The increase in alternative fuel vehicle (AFV) registrations in the UK in the second quarter of 2015. Across the EU, AFV registrations grew 17.4%, with electric vehicle (EV) registrations rising from 18,024 units in the second quarter of 2014 to 27,575 units in the same period in 2015. (Source: European Automobile Manufacturers Association, published July 2015)

124.6g/km: The average amount of CO2 emitted by a new car sold in the UK in 2014. The European average was 123.4g/km of CO2, within the 2015 target of 130g/km of CO2. (Source: Provisional data from the European Environment Agency, published April 2015)

1,376,889: The number of new car registrations in the UK in the first half of 2015. This represents an increase of 7%, the highest half-year performance on record. (Source: Society of Motor Manufacturers and Traders, published July 2015)